Chapter 12A, Problem 31P

To determine

(a)

The percentage of family’s expenses that fit in their needs category.

Answer to Problem 31P

The percentage of family’s expenses that fit in their needs category is $4.1525\%$.

Explanation of Solution

Given:

The after tax income of household is $\$120,000$.

The monthly expenses of the family are as shown below.

Category	Monthly expenses
House payment	$\$2100$
Gasoline	$\$200$
Phone/internet/TV	$\$250$
Eating out	$\$800$
Home maintenance	$\$333$
Insurance and taxes	$\$800$
Groceries	$\$550$
Utilities	$\$250$
Car payment	$\$750$
Saving	$\$900$
Vacation & entertainment	$\$800$

Table (1)

Calculations:

The family’s expenses which fit in needs category are house payment, gasoline, home maintenance, car payment, insurance and taxes, groceries and utilities.

Calculate the percentage of family’s expenses that fit in needs category.

$\begin{array}{c}\text{Need}\%=\frac{\left[\begin{array}{l}\$2100+\$200+\$333+\$750+\$800\\ +\$550+\$250\end{array}\right]}{\$120000}\times 100\\ =\frac{\$4983}{\$120000}\times 100\\ =4.1525\%\end{array}$.

Conclusion:

Thus, the percentage of family’s expenses that fit in their needs category is $4.1525\%$.

To determine

(b)

The percentage of family’s expenses that fit in the saving category.

Answer to Problem 31P

The percentage of family’s expenses that fit in the saving category is $0.75\%$.

Explanation of Solution

Calculations:

The family’s expense which fit in saving category is Saving.

Calculate the percentage of family’s expenses fitting in saving category.

$\begin{array}{c}\text{Saving}\%=\frac{\$900}{\$120000}\times 100\\ =0.75\%\end{array}$.

Conclusion:

Thus, the percentage of family’s expenses that fit in the saving category is $0.75\%$.

To determine

(c)

The percentage of family’s expenses that fit in the wants category.

Answer to Problem 31P

The percentage of family’s expenses that fit in the wants category is $1.5417\%$.

Explanation of Solution

Calculations:

The family’s expense which fit in wants category is Eating out, Phone/internet/TV, Vacation and entertainment.

Calculate the percentage of family’s expenses fitting in wants category.

$\begin{array}{c}\text{Wants}\%=\frac{\left(\$800+\$250+\$800\right)}{\$120000}\times 100\\ =\frac{\$1850}{\$120000}\times 100\\ =1.5417\%\end{array}$.

Conclusion:

Thus, the percentage of family’s expenses that fit in the wants category is $1.5417\%$.

To determine

(d)

The annual property tax paid as a part of house payment.

Answer to Problem 31P

The annual property tax paid as a part of house payment is $\$6100$.

Explanation of Solution

Given:

The amount paid for fire insurance is $\$1600$ per year.

The mortgage payment is $\$17500$.

Concept used:

Write the expression for mortgage payment.

$M=H-\left(FI+PT\right)$ ....... (I)

Here, the mortgage payment is M, house payment is $H$, fire insurance payment is $FI$ and annual property tax is $PT$.

Calculations:

Calculate the annual property tax.

Substitute $\left(\$2100\times 12\right)$ for $H$, $\$1600$ for $FI$ and $\$17500$ for $M$ in Equation (I).

$\begin{array}{l}\$17500=\left(\$2100\times 12\right)-\left(\$1600+PT\right)\\ PT=\$25200-\$1600-\$17500\\ PT=\$6100\end{array}$.

Conclusion:

Thus, the annual property tax paid as a part of house payment is $\$6100$.

To determine

(e)

The before tax income of the family.

Answer to Problem 31P

The before tax income of the family is $\$142200$.

Explanation of Solution

Given:

The family pays $18.5\%$ of their total income in taxes.

Concept used:

Write the expression for before tax income.

$BTI=ATI+T$ ....... (II)

Here, after tax income is ATI and tax paid is T.

Calculations:

Calculate the total tax paid.

$\begin{array}{c}T=18.5\%\times \$120000\\ =\frac{18.5}{100}\times \$120000\\ =\$22200\end{array}$

Calculate the before tax income.

Substitute $\$120000$ for $ATI$ and $\$22200$ for $T$ in Equation (II).

$\begin{array}{c}BTI=\$120000+\$22200\\ =\$142200\end{array}$.

Conclusion:

Thus, the before tax income of the family is $\$142200$.